Core Banking with Steve Wildman

Hey, GonzoBankers. Tony DeSanctis back with another hot take. I wanted to touch base on what’s happening in the core space. We know there’s a lot going on there, a lot of discussions around middleware and next-gen cores.

So I brought in the big guns here and asked Steve Wildman to join us. He runs our core practice here at Cornerstone.

Steve, what are the hot topics, and what’s going on with core right now?

Thanks, Tony. You know, the core market is still probably the least sexy of all the bank technologies, but it’s necessary.

What we’re seeing, as you mentioned with the next-gen cores, is we’re all keeping an eye on that market. It really hasn’t come to fruition yet. We see some people that are dipping their toes in it.

Yeah.

What happened was, probably about three years ago, our clients were asking about it, “What’s going on?” Probably two years ago, they said, “Well, tell me a little bit more.” Last year, they started saying, “Let’s see some demos.” Hopefully, in the next year or two, we’re going to see the market take off.

The challenge is none of these cores are really what we call rip-and-replace, where we could get rid of the core we’re on and convert day one onto these new platforms. So it’s more of an evolutionary take, and chances are it’ll be over several years and also involve some complexities, which might require a systems integrator.

It’s the larger institutions right now that are probably driving the demand. What we hope to see is, as those stabilize and those cores become more complete, more community institutions can engage with them, and then we can see that market start to take off.

What we’re telling clients right now is maybe start looking at your core strategy so you’re planning for the next five years, next seven years, to maybe take advantage of those new technologies that, again, are kind of in their evolutionary stage right now.

We do have a couple of clients that have gone ahead and engaged with a next-gen core, but they’re going to have to run their existing core in a sidecar mode, with the intent over time of sliding capabilities off the old core and onto the new core.

So just to clarify, the upside of the next-gen cores is?

Yeah, there are a few. One is certainly scalability because they’re going to be delivered through the public cloud, so you can take advantage of greater scale.

Also, they’re probably more open. There’s a plus and a minus to that, but they’re definitely more open, so you can do best of breed. The challenge is some of them are headless cores. So then you’ve got to look at, “Okay, do I need a teller system?” There are some capabilities that we might consider part of a normal core that have to be purchased through a third party.

So that’s the advantage, they’re open. The disadvantage is they’re probably a little too open right now for some of the community institutions.

The other thing, I think, is real-time capabilities. It enables us to do maybe banking as a service, payments as a service. The middleware you mentioned earlier, some of them can serve in a middleware capacity.

So there are a lot of potential applications for it. Again, we just want to see a little bit more out of them before we feel comfortable saying, “Hey, this is the path our clients should be taking today.”

So really, if I can recap then, essentially not quite ready for prime time because they don’t have the sort of complete core solution that our legacy cores have, but more efficient, faster, cloud-based, so scalable.

But definitely moving in that direction, and more and more folks will adopt as more and more functionality gets built into this.

Yeah, absolutely. I think the market’s ready for it. I think people are tired of the big three. The market’s ready for it, they’re just not ready for the market of community institutions yet.

Nice. What do you think, ETA? You have a guess?

You know, I think probably in the next three or four years, we’re going to see a couple of them start to get to a greater set of capabilities where they could be almost in a rip-and-replace mode, or where that running in parallel or in sidecar mode is shortened a little bit.

Nice.

Yeah.